Below is guest post written by a friend of the Asset Building Program, Mark Rukavina. Mark runs The Access Project and is one of the country's leding experts on medical debt and its debilitating impacts.
If you think it is implausible that co-payments for doctor or hospital visits could increase your mortgage interest rate, think again. Medical bills, even those that have been paid in full, can and do ruin credit and increase the cost of loans.
The reasons for this vary. Healthcare costs, for some, are simply unaffordable and bills go unpaid. Others are confused by their bills and allow them to go past the due date or be sent to a collection agency. Studies have found that American patients often do not understand claims well enough to know why they owe the bill or if it is correct. An American Medical Association study found that one of every five claims is inaccurately processed by health insurers.
In 2010, thirty million Americans were contacted by collection agencies for unpaid medical bills. Research published in the Federal Reserve Bulletin found that more than half of all collection accounts on credit reports are medical in nature.
Total healthcare spending in America amounted to $2.6 trillion in 2010. Of this total, $300 billion was paid out of pocket, for example through deductibles and co-payment fees. Between 2009 and 2010, the growth in out-of-pocket spending accelerated as more people switched to higher deductible plans or increased co-payments in exchange for lower premium costs.
As out-of-pocket healthcare costs increase, people are left wondering whether they or their insurer is supposed to pay the bill. Understandably, providers want payment in exchange for their services. When they do not receive prompt payments, they initiate action similar to other businesses and send the bills to collection.
It is a common misconception that medical debt cannot hurt your credit score. Collection agencies typically report medical bills to the credit bureaus and view all collection accounts as delinquent. They do so without regard for why the bills were sent to collection. With medical collections, many people pay off the balance promptly upon hearing from a collection agency. They are frequently surprised to find that these accounts stay on their credit report and lower their score.